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Thursday, August 1

Muscular Hryvnia Spooks Policy Wonks...Bad News for Kolomoisky: US IMF Vet to Chair PrivatBank Board...Nord Stream Nerves: Denmark Delays, US Senate Votes, Gazprom Begs For Mercy...Ze Wants Global Russian TV Based in Kyiv to Counter Kremlin
James Brooke
by James Brooke
UBN Morning News is reported and written by James Brooke, a former New York Times foreign correspondent and Bloomberg Moscow Bureau Chief

The hryvnia briefly strengthened past the psychological mark of 25 to the dollar Wednesday, triggering debate over a currency that has risen by 10% against the dollar this year. For today, the central bank has set a target rate of UAH 25.02 to the dollar – the strongest exchange rate in three years.

“What is happening now borders on criminal negligence on the job,” Roman Sulzhyk, a newly appointed government member of the PrivatBank supervisory board, wrote on Facebook. “The strengthening of the hryvnia should have been stopped at the level of 26-27 to the dollar.” Finance Minister Oksana Markarova appeared to concur in part, writing on the post: “The Ministry of Finance has been talking about this for several months. But we are not influencing the policy of the NBU.”

At the National Bank of Ukraine, a key official said Ukraine has “a floating, not a fixed hryvnia exchange rate” and the central bank’s role is only to smooth out sharp exchange rate fluctuations. To brake the hryvnia’s appreciation, the central bank bought $1 billion in July, the official, Sergiy Ponomarenko, director of the central bank’s open market department, told Interfax-Ukraine. So far this year, the central bank has bought $2.5 billion on the interbank foreign exchange market – double the amount purchased during the first seven months of last year.

    Foreign investment this year of $3 billion in Ukraine’s hryvnia bonds, coupled with high commodity prices, are the main factors creating a strong hryvnia, Ponomareko and other experts say. Wednesday’s quarter-point reduction in the US prime rate, to 2.25%, is likely to spur to investors to look for better returns elsewhere. At Tuesday’s weekly auction, the Finance Ministry sold a record UAH17.2 billion, the equivalent of $688 million, for yields varying between 15.45% and 16.5%. For comparison, Ukraine’s prime rate is 17%. At this level of investment, the Finance Ministry needs to raise only $600 million from foreign creditors to get through this year.

    Sharon Easky, a former expert advisor to the IMF and to U.S. Treasury’s Office of Technical Assistance, was elected Wednesday head of the PrivatBank Supervisory Board. The IMF and the US government watch PrivatBank closely as Igor Kolomoisky, the former owner, tries to win back control through the courts. The IMF and the US firmly supported the December 2016 nationalization of the bank, Ukraine’s largest bank. Finance Minister Markarova congratulated Easky and the new Board, saying: “PrivatBank should be stabilized, improved, developed and returned to the market through privatization by 2022.”

    Bank net profits are generally up for the first half y-o-y. With profits converted to dollars, here some leaders: Alfa-Bank (Kyiv) up 2.3 times, to $36 million; Ukrgasbank up 28%, to $11 million; Oschadbank up 4-fold, to $5 million; and Raiffeisen Bank Aval down 13%, to $89 million.

    The former mayor of Warsaw will become Ukraine’s Business Ombudsman this fall. Marcin Svenczycki, currently a member of Poland’s parliament, earlier served as Poland’s minister of international economic relations. He will succeed Algirdas Šemeta, a Lithuanian economist who has held the job for almost five years.

    In nearly five years of work, the Ombudsman’s Council has saved businesses $700 million, Šemeta, the outgoing Ombudsman, told reporters Wednesday. Fielding 5,865 formal complaints since starting work in December 2014, the Council reports that the leading source of complaints are: the State Fiscal Service, the National Police, local authorities, the Prosecutor General’s Office, and the Ministry of Justice. During the second quarter of this year, the number of complaints from foreign investors and large enterprises decreased.

    Naftogaz has asked the Hague Permanent Court of Arbitration to force Russian to pay $5.2 billion in compensation for the loss of offshore platforms and gas deposits seized in 2014 during Russia’s annexation of Crimea. Last March, the Court found in favor of Naftogaz and six subsidiaries, saying Russia is liable for the unlawful seizure of Naftogaz assets under the bilateral investment treaty between Ukraine and Russia. Russia has ducked making payments after losing similar arbitration cases with Ukraine.

    The EBRD could loan $80 million to Kernel as part of a $300 million syndicated loan to finance working capital for procurement, storage, transportation and sale of grain for export. The EBRD will review the loan to the agro giant at its Sept. 4 board meeting.

    A US bill to sanction European companies building the Nord Stream 2 pipeline moved forward Wednesday when the Senate Foreign Relations Committee voted 20-2 to approve the bill. “Russia has a bad history of using energy as a weapon,” Republican sponsor Ted Cruz said shortly before the vote. President Putin “gets his revenue for military adventurism and hostility” from oil and gas. Bloomberg reports the bill would penalize companies insuring the construction project and penalize the two companies laying the trans-Baltic pipe: Allseas Group SA of Switzerland and Saipem SpA of Italy.

    If Denmark does not approve the Nord Stream route through its waters this month, contractors will not meet their Dec. 31 deadline to build the $10.5 billion pipeline, the Financial Times reports. “This is a matter of concern or even panic,” one source close to Nord Stream 2 tells the FT.

    Nord Stream 2 is asking the EU’s top court to annul a new EU rule that bars gas suppliers from owning pipelines that bring gas into the EU. The pipeline company asserts the EU fast-tracked the change a few months ago expressly to penalize Gazprom, which owns Nord Stream 1 and 2. The pipeline company filed the complaint with the Court of General Jurisdiction of the EU, claiming: “The amendment was clearly designed and adopted for the purpose of disadvantaging and discouraging the Nord Stream 2 pipeline.” In response, a European Commission spokeswoman tells Reuters: “The EU now has clear rules that apply to all pipelines used to import gas into the European market.”

    President Zelenskiy, a career television professional, plans to launch a Kyiv-based, worldwide Russian language channel to promote a free market, democratic, socially liberal world view. The Trump Administration is expected to contribute to the budget. “We have developed the option to launch a Ukrainian Russian-language channel, with which we will be able to cover the Russian-speaking population throughout the world,” Kyrylo Tymoshenko, Zelenskiy’s deputy chief of staff, tells Interfax-Ukraine. The target audience will be southeast Ukraine, including the Russia-controlled sections of Donetsk and Luhansk.

    SouthFront, a pro-separatist English-language website, reacted to the plan, posting: “This is an attempt by Kyiv to replicate the efforts of the Baltic States, which are a hotbed for various anti-Russian propaganda outlets…One glance at some of them shows the open and unending anti-state propaganda, that promotes criminals, attempts to protect the rights of terrorists, among other absurdities.”

    From the Editor: Ukraine Business News is now in English, Ukrainian, Russian and German. Check out our website – Share with friends and colleagues who want to follow Ukraine, Europe’s next Frontier Economy. Best regards Jim Brooke –